American Family Paid Record Storm Claims to Customers in 2006

Madison, Wis. (March 6, 2007) — Record storm and catastrophe losses in 2006 significantly reduced the American Family Insurance Group’s overall earnings, the Madison-based insurer announced today. The company paid its customers about $1.1 billion in storm losses last year.

In preceding years, storm losses totaled $390.7 million in 2005, $389.4 million in 2004, $353.7 million in 2003 and $309.3 million in 2002. The previous American Family record storm loss year was $834.9 million in 2001.

“The bottom line isn’t the only way to assess the kind of year we had in 2006,” said David R. Anderson, chairman and chief executive officer. “Another approach is to consider how much our customers relied on us throughout our 18 operating states. In that sense, American Family had a highly successful year.”

Revenues were down slightly in 2006, due in part to the more than $300 million American Family reduced auto and homeowners insurance premiums in 2005 and early 2006. While those reductions started showing up on customer bills more than a year ago, the full effect showed up in the 2006 billing cycles.

Turnabout from 2005
American Family’s operating territory does not include states along the Gulf Coast or Atlantic Seaboard. So while some insurance companies experienced heavy losses from hurricanes in 2005, a relatively mild storm season in its operating states allowed American Family to add a considerable amount to policyholder equity that year.

The situation was reversed in 2006. The hurricane-prone states were remarkably quiet, and an unrelenting string of hail and wind storms swept through the nation’s midsection. One storm, a mid-April hailstorm, swept through Iowa, southern Wisconsin and Indiana, leaving more than $266.5 million in American Family losses in its wake. Other major wind and hail storms raked Kansas and Missouri in March ($215.2 million in American Family losses) and the Twin Cities in August ($116.9 million in American Family losses).

As a result, American Family recorded a $202.1 million loss from operations in 2006, one year after posting a record $889.1 million gain from operations in 2005. Gain or loss from operations is the group’s total revenues less total losses and expenses. After adding realized capital gains and tax expenses (or benefits) to the operating loss, the company’s net income was $24.4 million for the year.

Policyholder equity grows
Policyholder equity, which serves as financial protection for policyholders in the event of unusual catastrophic events or unexpected losses, increased $52.3 million in 2006 as a result of the appreciation of investment assets. By contrast, American Family added $623.3 million to policyholder equity in 2005.

The current total policyholder equity stands at $4.9 billion.

“It’s a good sign for our customers that American Family could withstand the record level of storms we had in 2006, yet still have a positive increase in policyholder equity,” said Anderson. “No one knows what challenges 2007 will bring, but American Family has the resources, expertise and commitment to customer service to meet our policyholders’ needs.”

Group revenues dropped to less than $6.8 billion, a decrease of 0.6 percent from 2005. Company assets rose to almost $15.5 billion, an increase of 5.7 percent. The decline of net income to $24.4 million was a decrease of 96 percent. Life insurance in force rose to $75.9 billion from $71.0 billion.

Staying the course
“It’s the nature of our business to continually reflect on our overall performance and seek ways to improve wherever possible,” said Jack C. Salzwedel, president and chief operating officer. “American Family is definitely on the right track. Our customers tell us they’re already highly satisfied with our products and service, but we’re investing further in our operations and technology to become even more responsive and efficient.

“We’re making sure the entire organization – from top to bottom – is focused on the customer, and our stellar customer loyalty figures show American Family remains one of the top values in the market.”

A notable change in 2006 was the company’s entrance into its 18th state, Washington. Agent offices in select areas of the state began serving customers July 1.

Here are the consolidated highlights of the group’s 2006 GAAP financial report (in thousands, except for individual life insurance in force):

Category 2006 2005 2004 2003 2002
Assets $15,477,009 $14,636,642 $13,641,212 $12,238,586 $11,005,679
Equity $4,889,281 $4,837,014 $4,213,709 $3,612,189 $3,139,923
Revenue $6,789,396 $6,831,824 $6,606,786 $6,064,463 $5,307,134
Life insurance in force $75.9 billion $71.0 billion $67.6 billion $64.5 billion $61.3 billion

American Family offers auto, homeowners, life, health, commercial and farm/ranch insurance, investment products and consumer loans in 18 states. The company employs 8,237 people and sells its products through 3,975 independent contractor exclusive agents.

American Family was founded in 1927 and is the nation’s third-largest mutual property/casualty insurance company and 14th-largest property/casualty insurance company group. The group ranks 323rd on the Fortune 500 list.

Contact

Ken Muth
Media Relations Director
Tel: (608) 242-4100, ext. 30680
E-mail: mediarelations@amfam.com